Intergenerational Policy and the Measurement of Tax Incidence

Policymakers often use measures of tax incidence (generational accounts) as criteria for policy selection. We use a quantitative model of optimal intergenerational policy to evaluate the ability of the tax incidence metric to capture the identity of recipients and contributors and the magnitudes transferred. The analysis suggests that when the reform implies a substantial change in economic efficiency, the tax metric fails to identify the magnitude of the welfare changes and those who benefit from those who pay. In contrast, when the policies evaluated imply only intergenerational redistribution, the metric correctly identifies winners and losers and provides reasonable estimates of the magnitude of welfare changes.